Recent data indicates that Melbourne’s rent have surged to an all-time high, with increases for both houses & apartments.

The median asking rent for houses increased by 2.5% over the March quarter to $390 per week, according to Domain Group’s rental report released on Thursday.

Unit rents also increased by some 1.4% over the quarter to total $365 a week.

What’s causing these increases?

Senior economic for the Domain Group, Andrew Wilson, highlights that strong population growth coupled with higher demand have created an environment that has led to an increase in housing rents for the first time in 18 months.

Whilst unit vacancies remain relatively low at 2.8%, he acknowledges that vacancies for houses has remained “quite tight” at 1.9%.

“Despite an increase in investor activity in Melbourne, it’s certainly still not providing the amount of new properties to take pressure off rent increases.”

Where’s this growth and demand located?

Whilst rental demand has increased significantly around the inner-ring and outer eastern suburbs, this growth has not been driven throughout the city uni-formally. In other words, there are pockets where demand has remained relatively stable.

As Mr. Wilson points out, “rents tend to track prices — that’s because renters by and large want to live in the same places where they want to buy.”

So what’s the affect on the market?

It’s widely accepted that these increases in rentals will come as particularly bad news for first home buyers, who will ultimately need to save harder and longer in order to get a foothold on the property ladder.

“House prices are going up, interest rates are low but they won’t be low forever, rents are going up – what this means for first home buyers is a real question,” Hocking Stuart chief executive Nigel O’Neil said.

“They’re going to have to stay at home longer to build up a reserve of cash… so they can save up what will be a substantial deposit to get into the market down the track.”

And those who can’t afford to buy will continue to drive demand for inner-city apartments as well as areas popular with first home buyers — which again means higher rents.

Where are most of these increases present?

Mr. Wilson says it is suburban units rather than city apartments that are set to experience these rental increases.

He expects that as these new apartment developments currently under construction become available for rent in the near future, rental growth will be subdued as supply increases to ease the demand.

Conclusion

Yes, it is certainly true that particular pockets in Melbourne have experienced increases in rental demand and rental prices. However, the city still remains far more affordable when compared with Sydney where median house rents are $520 and units $500 respectively.

In order to combat these circumstances and stay ahead of the game, it’s important to do the right research and be well-informed in order to locate and identify the right, proper & sound investment opportunities that are still available.

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